Zoning regulations and firms' corporate social responsibility

In modern cities firms must observe local zoning regulations in regard to their locations. In this chapter we first review the literature on the economic effects of legal restrictions on firms' locations in a linear city. A common assumption in research on zoning is that firms maximize their own profits. However, the objective function of private firms may also include corporate social responsibility (CSR), so the objective function of a consumer-friendly firm is a convex combination of consumer surplus and profits. Following this approach, we then study the spatial location of two firms concerned about CSR. We find that when concern for CSR is initially low and then increases both firms locate closer to the middle of the market, but both firms move away when it is high enough. The zoning regulations used to obtain the locations of firms that maximize social welfare are the following: permitting only locations between the two social maximizing locations (included) when their concern for CSR is low and permitting only locations outside the open interval between the two social maximizing locations when their concern for CSR is high.